Emerging markets funds wait for the big flows

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Pain in the euro zone encouraged global investors to shift their allocations back to emerging markets funds this week, but with individual country funds still bleeding money, the move seems tentative. Global emerging markets funds like EEM ( quote ) took in a net $1.1 billion in new money over the last week, reflecting a sharp divergence between optimism about emerging markets and the newly negative tone on Europe and other developed regions: In fact, the assets in European stock funds and ETFs deflated at the fastest rate since mid-March, while European bond portfolios also reported net redemptions However, 80% of the new capital moving into emerging markets ended up parked in ETFs and not traditional mutual funds, which reveals that this is -- as yet -- not a strategic shift but a tactical move away from euro risk in particular. ETFs are somewhat "faster" money and so are the preferred vehicle for hedge funds and other institutional investors moving their money in and out of asset classes on a short-term basis. Mutual funds, by comparison, are slower moving and so reflect changes in global allocation more slowly. Furthermore, the shift in flows failed to penetrate much more deeply than the broadest global portfolios like EEM -- again indicating that this is as yet a relatively shallow reflex move. In the BRIC group, only Indian funds like INP ( quote ) gained ground with a net $25 million in fresh subscriptions. Russian funds like RSX ( quote ) lost $68 million, Chinese funds like FXI ( quote ) lost $346 million and Brazilian funds like EWZ ( quote ) shed $72 million. Among flows to specialized country funds, only Taiwan's EWT ( quote ) was a clear winner: This shallow move is proof positive that emerging markets are holding in. Given how poor as flows have been up until this point, we are now waiting for a 2007 -- or even a 2006 -- moment when suddenly the floodgates open and global capital starts pouring into the asset class. When that happens, be ready.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

Referenced Stocks: EEM , EWZ , FXI , INP , RSX

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